Dynamic IS-LM-AS Model Augmented by the Inflation Expectations

Abstract: The paper investigates a dynamic IS-LM-AS model augmented by the expectations. The money and the potential product grow by the exogenous rates. In general, the inflation is adjusted to the production gap and the inflation expectations are adaptive or rational. We will find the stability conditions. There is a possibility of the cyclical movement of the economic variables. The results are similar to ones generated by the Sidrauski model of the monetary growth – money is super-neutral in the steady state. Using the model, it is possible to demonstrate the various views of the different economic schools as the Keynesian school, the Classical School, the Monetary School, the Neo-Classical Synthesis, the New Classical School and the New Keynesian School.